LIVE MARKETS-More dollar depreciation to weigh on European bank earnings - JPM

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MORE DOLLAR DEPRECIATION WOULD WEIGH ON EUROPEAN BANK EARNINGS - JPM

The U.S. dollar could be about to wrap up its fifth straight month in negative territory versus the euro. The greenback is down about 10% year-to-date amid trade uncertainity, tariffs and U.S. fiscal worries.

According to JP Morgan, these year-to-date FX moves are not yet fully reflected in estimates, with further moves expected. JPM's European banks team shares what they think dollar depreciation might spell for the names they cover.

"We see European Banks as negatively geared to USD weakness vs. local reporting currency strengthening (EUR, CHF and GBP) given the higher proportion of revenues which are USD-denominated compared to costs, leading to a negative earnings effect," they say.

They highlight that while the "UK Asian Banks" like Standard Chartered STAN.L and HSBC HSBA.L which report in USD are positively impacted at the profit before tax level, the fact that their UK-listed stock prices are in GBP is a negative.

Meanwhile, Euro area banks like Deutsche Bank DBKGn.DE and Santander SAN.MC, as well as Barclays BARC.L, which have foreign operations denominated in dollar, will see more depreciation weigh on earnings.

Zooming in, they estimate around 50% of Barclays' profit before tax is in USD, going by full year 2024 figures, and estimate a 5% negative profit before tax impact from a 10% USD depreciation vs. GBP. JPM is overweight Barclays.

They are also overweight Deutsche Bank, which counts about 24% of revenues and 18% of costs in USD according to JPM.

(Lucy Raitano)

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